Limited availability of domestic coal and gas is constraining development of Indian power sector, which is expected to see on average an annual capacity addition of 12,000 MW over next five years, says a report. "Even with easier equipment procurement and increasingly streamlined approvals, Indian [power sector] development is being held back by limited availability of domestically sourced coal and gas," according to a research report from global banking major UBS.

Shortage of coal is affecting the country's power sector, whose main source of generation are thermal power plants. The shortage of coal is likely to reach 137 MT this fiscal and 200 MT by FY17.

"Growth is constrained by the ability of power purchasers to afford higher power prices that will result from an increasing reliance on imported fuel, which is much more expensive," the report noted.

Going by UBS estimates, India is expected to add 45,000 MW of coal-fired generation capacity between FY10 and FY15.

As per the report, the Indian power generation capacity is expected to see a Compound Annual Growth Rate of 6.5% over the next five years, or an average of 12,000 MW annually.

"Of this, we expect coal-fired capacity to account about 67% of the total, wind 12% and gas 8%," it added.

In the current five-year plan (2007-12), the Power Ministry is expected to see a capacity addition of about 51,000 MW. The capacity addition in the first four years of the 11th Plan ending March 31, 2012, stood at 34,462 MW.

The government is targeting a power capacity addition of 1,00,000 MW in the 12th five-year plan (2012-17).

The report pointed out that power plant investment would be constrained "even if bureaucratic impediments to power plant development continue to fall...".

"This is because we think fuel availability, fuel costs and ability for off takers to absorb higher fuel prices will remain as significant challenges," it noted.